The promise of receiving attractive returns has been a cornerstone of the crypto and decentralized finance (DeFi) industry. attractive returns crypto and decentralized finance (DeFi) Early models managed to attract massive amounts of capital, driven by the high interest rates they offered. attract massive amounts of capital high interest rates But the real question is: how did we get to this point? how did we get to this point? 1️⃣ The Rise of Infinite APYs 1️⃣ The Rise of Infinite APYs Everyone remembers that era of indiscriminate forks, when thousands of tokens were launched just to feed outrageous APYs. indiscriminate forks outrageous APYs. But before reaching that moment, someone had to throw the first stone, right? someone had to throw the first stone The first protocol considered fully DeFi was MakerDAO, launched in 2017. fully DeFi MakerDAO It allowed users to lock ETH as collateral and mint DAI, a decentralized stablecoin pegged to the dollar. lock ETH as collateral DAI decentralized stablecoin MakerDAO was revolutionary for two reasons: MakerDAO was revolutionary for two reasons: It introduced the concept of collateralized loans without intermediaries.
It proved it was possible to create a stablecoin without holding actual dollar reserves. It introduced the concept of collateralized loans without intermediaries. collateralized loans without intermediaries. It proved it was possible to create a stablecoin without holding actual dollar reserves. stablecoin without holding actual dollar reserves. Soon after, other pillars of the ecosystem emerged, such as Uniswap (automated exchanges without an order book) and Compound (programmable money markets), laying the foundation for today’s DeFi landscape. Uniswap Compound The ignition point was the launch of Compound’s COMP token in June 2020. ignition point Compound’s COMP token Although the protocol already provided interest for lending and borrowing, the new model rewarded users with COMP tokens just for using the protocol, even if they didn’t actually need the loan. rewarded users with COMP tokens This incentivized a frenzied behavior: borrowing to lend again, in a leveraged loop that multiplied gains, an “infinite loop.” frenzied behavior leveraged loop infinite loop. That’s how the phenomenon known as yield farming was born, along with the craze for astronomical APYs. yield farming craze for astronomical APYs. But if we ask people from that time, few likely remember those moments, as yields weren’t outrageous just yet. yields weren’t outrageous just yet. So the question is: who inflated the bubble, and how? who inflated the bubble, and how? Several Players Helped Fuel the Bubble: Several Players Helped Fuel the Bubble: Yearn Finance (YFI) Yearn Finance (YFI) Yearn Finance (YFI) Led by independent developer Andre Cronje, YFI launched without a token pre-mine or private sale. Andre Cronje without a token pre-mine or private sale. All tokens were distributed to users providing liquidity. Within weeks, YFI skyrocketed from zero to over $30,000, and its automated vaults went viral. zero to over $30,000 automated vaults SushiSwap SushiSwap SushiSwap In August 2020, SushiSwap, a fork of Uniswap, offered SUSHI rewards to users migrating liquidity from Uniswap. SUSHI rewards to users migrating liquidity from Uniswap. It was a successful "vampire attack" that revealed how high APYs could destabilize even the most established projects. vampire attack high APYs could destabilize even the most established projects. PancakeSwap and Binance Smart Chain (BSC) PancakeSwap and Binance Smart Chain (BSC) PancakeSwap and Binance Smart Chain (BSC) Backed by Binance, PancakeSwap replicated the model on the BSC. replicated the model on the BSC. It offered APYs over 1,000% and dirt-cheap fees compared to Ethereum, attracting a new wave of retail investors. APYs over 1,000% dirt-cheap fees retail investors. Its token, $CAKE, combined with staking and exponential price growth, triggered intense FOMO, drawing in even more capital. $CAKE triggered intense FOMO Following PancakeSwap’s popularity, many protocols emerged copying $CAKE’s strategy. many protocols emerged copying $CAKE’s strategy. However, most of these DeFi tokens lacked sustainable foundations. most of these DeFi tokens lacked sustainable foundations. APYs were funded by printing more tokens, and when users started selling their rewards, prices collapsed. APYs were funded by printing more tokens prices collapsed Key Reasons for the Collapse: Key Reasons for the Collapse: Over-minting of tokens: runaway inflation without real revenue
Mass dumping of rewards: users farmed and sold immediately
Lack of long-term utility: many projects were just forks with cosmetic changes
Hacks and bugs: platforms like Harvest Finance, Value DeFi, and Pickle lost millions to exploits Over-minting of tokens: runaway inflation without real revenue Over-minting of tokens: Mass dumping of rewards: users farmed and sold immediately Mass dumping of rewards: Lack of long-term utility: many projects were just forks with cosmetic changes Lack of long-term utility: Hacks and bugs: platforms like Harvest Finance, Value DeFi, and Pickle lost millions to exploits Hacks and bugs: Harvest Finance, Value DeFi, Pickle The market (partially) learned that sustainable returns require real economic models, not just endless token printing. (partially) learned sustainable returns require real economic models, And this is where Real Yield was born. Real Yield 2️⃣ What Is Real Yield? 2️⃣ What Is Real Yield? Real yield in DeFi refers to sustainable interest or rewards generated from actual revenue streams, such as trading fees, lending fees, or protocol profits. Real yield sustainable interest or rewards actual revenue streams, trading fees, lending fees, or protocol profits. Unlike fake yield, inflated by endless token emissions without real backing, real yield: fake yield real yield: Doesn’t depend on minting new tokens
Is distributed to holders or stakers from actual net profits
Is lower, but more stable and legitimate Doesn’t depend on minting new tokens Doesn’t depend on minting new tokens Is distributed to holders or stakers from actual net profits distributed to holders or stakers from actual net profits Is lower, but more stable and legitimate lower more stable and legitimate For instance, if a DEX charges a fee on every trade and redistributes part of that to token holders, that’s real yield. that’s real yield. It’s not speculative farming, it’s profit-sharing. profit-sharing. So, when, and thanks to whom, did Real Yield gain popularity? So, when, and thanks to whom, did Real Yield gain popularity? The term real yield began gaining traction in late 2021 and early 2022, after the collapse of many inflated yield farming platforms (such as OlympusDAO and its many forks). real yield in late 2021 and early 2022 inflated yield farming platforms OlympusDAO In response to these events, several protocols emerged: In response to these events, several protocols emerged: GMX GMX GMX A decentralized trading platform on Arbitrum. Arbitrum It distributed trading fees directly to GMX stakers, in real ETH, not inflationary tokens. trading fees directly to GMX stakers real ETH dYdX v3 dYdX v3 dYdX v3 Introduced rewards more closely tied to actual protocol usage. rewards more closely tied to actual protocol usage. Trading fees are redistributed among LPs and stakers. Trading fees are redistributed Real yield became a maturity narrative in the space, aiming to attract institutional capital and less speculative users. Real yield maturity narrative institutional capital less speculative users 3️⃣ The Current State of Things 3️⃣ The Current State of Things The situation is mixed, but clearly more favorable than in 2020: clearly more favorable than in 2020: There’s growing support for real yield: There’s growing support for real yield: More cautious investors after the collapse of Terra, Celsius, and others.
Protocols like GMX, Lido, Pendle, Aevo, EtherFi, Synthetix v3, and IAESIR are betting on models with organic revenue and sustainable distribution.
New narratives like restaking (Eigenlayer), liquid staking, or modular yield are aligned with this philosophy. More cautious investors after the collapse of Terra, Celsius, and others. More cautious investors Protocols like GMX, Lido, Pendle, Aevo, EtherFi, Synthetix v3, and IAESIR are betting on models with organic revenue and sustainable distribution. GMX, Lido, Pendle, Aevo, EtherFi, Synthetix v3 IAESIR organic revenue and sustainable distribution. New narratives like restaking (Eigenlayer), liquid staking, or modular yield are aligned with this philosophy. New narratives restaking (Eigenlayer) liquid staking modular yield But risks still remain: But risks still remain: Some protocols disguise inflationary yield as “real yield.”
There’s still a lot of speculative capital chasing trends like memecoins or Layer 2 airdrop farming. Some protocols disguise inflationary yield as “real yield.” disguise inflationary yield as “real yield.” There’s still a lot of speculative capital chasing trends like memecoins or Layer 2 airdrop farming. a lot of speculative capital memecoins Layer 2 airdrop farming. Notable Protocols Following the Real Yield Philosophy Notable Protocols Following the Real Yield Philosophy 1. GMX – Perpetual Exchange With ETH-Paid Fees GMX Perpetual Exchange With ETH-Paid Fees GMX is a decentralized futures trading protocol operating on Arbitrum and Avalanche. GMX Arbitrum and Avalanche Its model is simple but effective: GMX stakers and GLP liquidity providers receive a share of the actual trading fees, paid in ETH or AVAX, not in inflated tokens. simple but effective: GMX stakers and GLP liquidity providers receive a share of the actual trading fees ETH or AVAX GMX became famous for distributing tens of millions of ETH during peak volume periods
Yield is directly tied to protocol usage: more trading = more rewards
It’s considered a pioneer in proving that a DEX can generate stable cash flow for its users GMX became famous for distributing tens of millions of ETH during peak volume periods distributing tens of millions of ETH Yield is directly tied to protocol usage: more trading = more rewards Yield is directly tied to protocol usage It’s considered a pioneer in proving that a DEX can generate stable cash flow for its users pioneer in proving that a DEX can generate stable cash flow for its users 2. IAESIR – Algorithmic Hedge Fund With Real Profits 2. IAESIR – Algorithmic Hedge Fund With Real Profits IAESIR is a DeFi investment fund that combines AI-based algorithmic trading with deflationary tokenomics and multiple revenue streams. IAESIR AI-based algorithmic trading deflationary tokenomics multiple revenue streams. Its real yield model is based on: Distributing 70% of the net profits generated by its trading algorithm (based on CNNs and strategies like volatility arbitrage and smart DCA) to investors Distributing 70% of the net profits generated by its trading algorithm (based on CNNs and strategies like volatility arbitrage and smart DCA) to investors Distributing 70% of the net profits CNNs volatility arbitrage smart DCA Token (Not Yet Launched) Token (Not Yet Launched) $IASR is not yet available, but it's designed to distribute 70% of the algorithm’s profits. $IASR distribute 70% of the algorithm’s profits. No inflation
Buybacks and burn mechanisms
Fully aligned with the real yield philosophy No inflation Buybacks and burn mechanisms Buybacks and burn mechanisms Fully aligned with the real yield philosophy real yield philosophy IAESIR offers a transparent, scalable model backed by real technology, built to appeal to both retail and institutional investors. transparent, scalable model backed by real technology both retail and institutional investors. 3. Lido Finance – Leader in Liquid Staking With Validator Rewards 3. Lido Finance – Leader in Liquid Staking With Validator Rewards Lido is the largest liquid staking protocol on Ethereum, allowing users to stake their ETH without locking it, in exchange for stETH, a liquid token that represents their staked position. Lido largest liquid staking protocol on Ethereum stETH Lido’s real yield model is based on: real yield model Rewards are generated from ETH staking through validators operated by trusted node operators.
These rewards are distributed to stETH holders by automatically adjusting their balances via a rebase mechanism.
No artificial inflation: rewards come from the actual performance of validators on the Ethereum network.
Lido charges a fee on staking rewards, part of which goes to participants and part to the protocol’s treasury. Rewards are generated from ETH staking through validators operated by trusted node operators. Rewards are generated from ETH staking These rewards are distributed to stETH holders by automatically adjusting their balances via a rebase mechanism. distributed to stETH holders rebase mechanism. No artificial inflation: rewards come from the actual performance of validators on the Ethereum network. No artificial inflation: actual performance of validators Lido charges a fee on staking rewards, part of which goes to participants and part to the protocol’s treasury. fee on staking rewards Lido has established itself as a core real yield protocol, attracting millions of users and integrating across multiple DeFi platforms to increase stETH utility. Lido has established itself as a core real yield protocol Its success has helped drive the liquid staking narrative as a legitimate way to earn sustainable and accessible yield on staked assets. liquid staking narrative earn sustainable and accessible yield 4️⃣ In Summary 4️⃣ In Summary 1. The APY Boom Was an Inflation-Driven Illusion 1. The APY Boom Was an Inflation-Driven Illusion The yield farming craze was fueled by incentives without economic backing.
Protocols like Compound, Yearn, SushiSwap, and PancakeSwap offered massive returns funded by token emissions, not real productivity.
This created an unsustainable speculative bubble that collapsed when users began mass selling their rewards. The yield farming craze was fueled by incentives without economic backing. yield farming craze incentives without economic backing. Protocols like Compound, Yearn, SushiSwap, and PancakeSwap offered massive returns funded by token emissions, not real productivity. Compound, Yearn, SushiSwap, PancakeSwap funded by token emissions, This created an unsustainable speculative bubble that collapsed when users began mass selling their rewards. unsustainable speculative bubble mass selling their rewards. 2. The Collapse Forced the Market to Mature 2. The Collapse Forced the Market to Mature The fall of OlympusDAO and similar projects showed that the inflationary model was unviable.
This phase made it clear that sustainable DeFi yield must come from real revenue, not just printing more tokens. The fall of OlympusDAO and similar projects showed that the inflationary model was unviable. OlympusDAO inflationary model was unviable. This phase made it clear that sustainable DeFi yield must come from real revenue, not just printing more tokens. sustainable DeFi yield real revenue, 3. Real Yield Emerged as a Rational Response 3. Real Yield Emerged as a Rational Response Defined as sustainable returns from fees, commissions, or tangible protocol profits.
Lower, but much more stable and transparent.
Represents an evolution toward economic efficiency in DeFi. Defined as sustainable returns from fees, commissions, or tangible protocol profits. sustainable returns fees commissions, or tangible protocol profits. Lower, but much more stable and transparent. much more stable and transparent. Represents an evolution toward economic efficiency in DeFi. evolution toward economic efficiency 4. Real Yield Pioneers Set a New Standard 4. Real Yield Pioneers Set a New Standard Protocols like GMX and dYdX proved it's possible to redistribute real profits (in ETH, not inflationary tokens).
Helped attract more sophisticated capital and restore trust in the sector after the DeFi Summer. Protocols like GMX and dYdX proved it's possible to redistribute real profits (in ETH, not inflationary tokens). GMX and dYdX redistribute real profits Helped attract more sophisticated capital and restore trust in the sector after the DeFi Summer. more sophisticated capital restore trust 5. IAESIR Positions Itself as a Key Player in the New Narrative 5. IAESIR Positions Itself as a Key Player in the New Narrative Although its token $IASR hasn’t launched yet, it already operates with a profitable AI-based algorithm using CNNs.
Designed to distribute 70% of real profits to future stakers, without inflation and with deflationary mechanisms.
Its transparent, tech-driven focus on real performance makes it a strong example of the new DeFi wave. Although its token $IASR hasn’t launched yet, it already operates with a profitable AI-based algorithm using CNNs. $IASR profitable AI-based algorithm CNNs. Designed to distribute 70% of real profits to future stakers, without inflation and with deflationary mechanisms. distribute 70% of real profits without inflation deflationary mechanisms. Its transparent, tech-driven focus on real performance makes it a strong example of the new DeFi wave. transparent, tech-driven focus on real performance new DeFi wave. 6. The Present Is Mixed, but Evolution Is Evident 6. The Present Is Mixed, but Evolution Is Evident Many projects have adopted or imitated the real yield approach.
Yet the ecosystem still struggles with speculative noise, empty promises, and short-lived trends.
The key will be to differentiate between protocols generating real revenue and those merely disguising inflation. Many projects have adopted or imitated the real yield approach. adopted or imitated Yet the ecosystem still struggles with speculative noise, empty promises, and short-lived trends. speculative noise, empty promises, short-lived trends. The key will be to differentiate between protocols generating real revenue and those merely disguising inflation. differentiate between protocols generating real revenue disguising inflation.

Maker

Avalanche

PancakeSwap

Lido Staked ETH

Terra

Uniswap

Binance

Celsius

Stablecoins and the Interest Rate Trap: A Systemic Risk for DeFi?

Product Development: From Analytics to Customer-Centric Insights

Read My Stories

Hire Me

Too Long; Didn't Read

The Money You’re Earning in Crypto Isn’t Real

The Money You’re Earning in Crypto Isn’t Real

About Author

Comments

TOPICS

THIS ARTICLE WAS FEATURED IN

Related Stories

Untitled Story

A2P Messaging: Navigating the Future of Business Communication

The Noonification: How Often Do NFTs Pass The Howey Test? (1/13/2023)

Darwin's Hybrid Intelligence to Align AI & Human Goals for Startups & VCs

The Noonification: White Man (11/26/2022)

The Noonification: The Metaverse is a Sh*tshow (11/2/2022)

A2P Messaging: Navigating the Future of Business Communication

The Noonification: How Often Do NFTs Pass The Howey Test? (1/13/2023)

Darwin's Hybrid Intelligence to Align AI & Human Goals for Startups & VCs

The Noonification: White Man (11/26/2022)

The Noonification: The Metaverse is a Sh*tshow (11/2/2022)

Light-Mode

Classic

Newspaper

Dark-Mode

Neon Noir

Minty

HN StartUps